There are days when the market falls because investors change their minds.
And there are days when it falls because machines, funds, and ETFs must sell, without asking if the price is fair...
Yesterday was the second kind.
Yesterday the Nasdaq fell 1,421.52 points (-5.52%).
This is the largest drop in points since the index has existed. The previous record, 1,121.5, was set just on June 5 this year.
The market wiped out over $3 trillion, the largest daily market wipeout in Wall Street history!!
The three major indices recorded their worst day since April 2025, the days of Trump's tariffs.
The semiconductor index fell about 12%, the second-largest drop in its history.
The technology sector in the S&P 500 fell 7.3%, its worst day since March 16, 2020, the days of the coronavirus.
"The Magnificent Seven" lost more than $1 trillion in value combined.
Nvidia ($NVDA) alone lost more than $440 billion, in a 9.3% decline.
The Nasdaq 100 index lost between $2.3 and $2.5 trillion.
And it was not just technology..
On the New York Stock Exchange, 2,344 stocks fell and only 416 rose, nearly 6 decliners for every advancer. On the Nasdaq: 4,166 decliners against 855 advancers.
All 11 sectors of the S&P 500 closed lower.
The VIX, the index that measures how much volatility investors expect in the coming month, jumped 11.57 points (about 70%) and closed at 28.18.
According to CNBC, this is its largest jump in points since April 4, 2025.
The volumes: everyone ran for the exit door at the same moment..
The technology sector ETF (XLK) traded more than 33 million units, three times the average of the last 30 days.
In Nvidia stock, more than 300 million shares changed hands. According to our data, the average in the last month was about 100 million a day. Three times.
And according to Reuters, premiums on protective options (puts) on the indices were double the usual.
And now to the figure that explains more than anything else why it did not stop: retail investors, those who usually "buy the dip", simply disappeared. According to Vanda Research, a firm that tracks retail investor trading, they net sold individual stocks worth about $338 million, the largest daily outflow since March 2020.
"This is what we would call a complete capitulation of retail investors," said Viraj Patel of Vanda.
And here is the part that no one sees: who sold indiscriminately
To understand why a decline turned into a collapse, one must know three "automated sellers":
1. Leveraged ETFs. An ETF like TQQQ promises 3 times the daily movement of the Nasdaq, and SOXL 3 times the semiconductor index.
To maintain leverage, it must buy at the end of each day when the market rose and sell when it fell, in the final minutes of trading.
On a day like Thursday, this means a massive sale into the close.
According to Nomura, quoted in Reuters, leveraged ETFs had to sell about $47 billion in stocks toward the close, the second-largest amount in the bank's data since July 2006.
2. Trend-following funds and volatility-managed funds. CTA funds (funds that track price trends) sell automatically when the price breaks certain levels. "Vol-control" (volatility control) funds reduce stock exposure when volatility jumps.
And yesterday it jumped..
Even before the fall, Goldman Sachs calculated that in a sharp decline, trend-following funds could sell up to about $164 billion in stocks in a month.
Vanda Research described on the day itself "forced selling of systematic and leveraged strategies".
3. Market maker hedging (gamma). Anyone who sells options to the public hedges themselves.
When the market falls below certain levels, this hedging forces them to sell more futures contracts as the market goes down.
Charlie McElligott of Nomura, one of Wall Street's prominent analysts in the field of flows, summarized the day in three words: "They're shooting the generals", shooting the generals, meaning the stocks that led the market.
And crypto? Liquidations. A "liquidation" happens when someone bought on margin (leverage), the price fell, and the exchange forcibly closes their position.
According to CoinGlass, in the 24 hours until Thursday evening, about $1.08 billion in positions of 210,326 traders were liquidated.
The largest liquidation: about $10.94 million, a long bet on Ethereum on the Binance exchange.
And what about hedge funds?
Even before Thursday, according to prime broker data from Goldman Sachs (the bank that finances and clears for hedge funds), the funds sold about $20 billion in technology stocks in two weeks, wiping out in five trading days all of their net purchases in AI stocks since the beginning of 2025.
John Flood of Goldman wrote to clients that the phones at the desk were "exploding".
On the day itself, it was reported that Walleye Capital, which manages about $17 billion, collapsed after a 5.9% decline in October.
And now to the question everyone is asking, why did it happen?
Here is what we think drove this crash, in order
1. The elections: the Democrats took both houses of Congress, and in Texas, one of the largest hubs for data centers, Gina Hinojosa was elected.
2. The freeze: Hinojosa told CNN on Thursday: "We need to pause what we are doing with data centers until we have the means to protect Texans." And Senator Bernie Sanders called for a nationwide freeze.
3. Dan Ives of Yorkville wrote that at least 10% of the 800 to 1,000 planned data centers in the US were dropped from the plan, and up to 20% will be delayed.
4. The positions: hedge funds and investors were deeply positioned in the same AI stocks, with high leverage.
5. The machines: leveraged ETFs, trend and volatility funds, and options hedges sold automatically, and retail investors were not there to buy.
Friends, this is exactly how a decline turns into a collapse.
The question is no longer just how much computing power the world needs, but how much of the market relies on borrowed money that must exit at that very moment